Dividend Investing 101 | Dividends Explained

What Are Dividend Aristocrats And How To Profit From Them

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Dividend AristocratsDividends are like the third rail for public companies. Most board members and executives would much rather do something drastic like borrow money instead of reducing their dividend payments to shareholders. So, there is something to be said for dividend aristocrats who continue to raise their dividends year in and year out improving their shareholder’s personal finances.

What Are Dividend Aristocrats?

A dividend aristocrat is a company that has consecutively raised its dividend every year for at least 25 years. The 25 year mark is of increasing dividends every year at least once if not more times within a year is hard to do. Twenty-five years shows consistent dividend growth through all types of bull and bear markets, dips, downturns, and even recessions. Dividend aristocrats have shown investors that they are consistent and growing winners in the stock market that can be trusted.

Dividend aristocrats are often blue chip stocks. These stocks have paid a consistent dividend with solid returns for many years. Many of these stocks have increased their dividends substantially over time, and some of them have even increased their dividends quarterly.

Dividend aristocrats not only pay their dividend, but these are also high growth stocks that have consistently put up good numbers. Imagine realizing a consistent return from growth, even a split, and then turning around to receive a dividend as well.

Dividend Aristocrats Do Well In A Market Down Turn

Dividend aristocrats are stellar companies generally even during an economic recession, bear market, or downturn. Many people are always looking for investments that do well in an economic downturn as well as in boom times. Dividend aristocrats are investments that do well during an economic upturn and downturn. Dividend aristocrats have a track record of paying out a dividend every quarter no matter what is going on.

Some of these companies have been in the group of dividend aristocrats for more than the required 25 years. 3M (NYSE: MMM) has been increasing its dividend since 1959, and Johnson and Johnson (NYSE: JNJ) has been increasing its dividend every year since 1963. And, these are just two of several examples. In a world that is constantly moving towards instant gratification and speculative stocks, a secure dividend that has been increasing every year for several decades can be very appealing.

Dividend Aristocrats In The Dow Jones Industrial Average

Currently, there are nine members of the Dow Jones Industrial Average that are dividend aristocrats. The dividend aristocrats of the Dow Jones Industrial Average are Wal-Mart, Coca-Cola, Johnson & Johnson, Proctor and Gamble, McDonald’s, ExxonMobil, AT&T, Chevron, and 3M. As you can see, these names are a wide selection of American companies from consumer stables, industrials, etc. 3M and Procter & Gamble have been increasing their dividend payouts to investors since the 1950s. Chevron just barely made the list having started to increase its dividends in 1988. The current dividend yield for these companies range from 2.3% to 5.1%.

2019 Dividend Aristocrats List

Dividend Aristocrats In The S&P 500 Index

There are currently 53 companies who are dividend aristocrats in the S&P 500 Index according to Standard and Poor’s. The companies run the gamut of industries and sectors in the index. You will find healthcare companies like Abbott Laboratories, consumer discretionary like the Family Dollar Stores, material and industrial companies, and many more. It really does cover the wide spectrum of the economy.

Dividend aristocrats set themselves up beautifully for a buy and hold investment strategy. Of course, I’m not recommending buy and hold forever, never selling. But, dividend stocks that increase their dividend payouts for decades can help you to feel comfortable buying and holding stocks for the long term.

It does not take but one time for these companies to not increase their dividends for them to be removed from the list of dividend aristocrats. And, then it is another 25 year wait for those companies who cut their dividends to be added back to the list of dividend aristocrats. You can understand why executives and boards take dividends and increasing them so very serious.

When you are investing in dividend aristocrats, not all of them are created equal of course. Each company is still a unique entity that has definitive investment characteristics that you must be concerned about when you invest. You must still do your research and pick the ones that will best work out for you and your investment objectives in the end.

What do you think? Are dividend aristocrats attractive? Do you have them in your portfolio? Do you seek them out specifically? I’d love to hear your thoughts in the comment section below.

I'm a dividend growth investor who is aiming to retire early in 4 years at the age of 45. My goal is to live off the income my dividend portfolio and rental property produce exclusively and leave the corporate rat race. I hope you will join me in this journey!

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